Whether you are issuing new shares to investors, transferring shares between shareholders, implementing an employee equity plan, or selling an ownership interest in a corporation, properly documenting the transaction is critical.
Share transactions affect ownership, voting rights, tax planning, securities law compliance, shareholder relationships, and future financing opportunities. Errors in documenting a share transaction can create significant legal and commercial issues years later.
At Substance Law, we advise corporations, founders, investors, shareholders, family businesses, startups, and private companies throughout Canada on share issuances, share transfers, share sales, shareholder approvals, securities law compliance, corporate records, and ownership restructurings.
Share Issuances
A share issuance occurs when a corporation creates and issues new shares.
Share issuances commonly occur:
- when a corporation is incorporated;
- during investment rounds;
- when founders receive equity;
- when employees receive equity compensation;
- when directors or consultants receive shares;
- in connection with acquisitions;
- following the exercise of options or warrants;
- during corporate reorganizations; or
- when raising capital.
Unlike a share transfer, a share issuance creates new shares rather than transferring existing shares.
Share Transfers
A share transfer occurs when an existing shareholder transfers shares to another person or entity.
Examples include:
- founder transfers;
- family transfers;
- estate planning;
- shareholder exits;
- gifts;
- corporate reorganizations;
- holding company transactions;
- employee purchases;
- divorce settlements; and
- succession planning.
Share transfers frequently require review of shareholder agreements, articles, bylaws, and applicable legislation before they can proceed.
Share Sales
A share sale generally involves a shareholder selling existing shares to a purchaser.
Share sales may involve:
- all issued shares of a corporation;
- a minority interest;
- a controlling interest;
- preferred shares;
- common shares;
- voting shares;
- non-voting shares;
- multiple share classes; or
- shares held through holding companies.
The terms of a share sale should be carefully documented to reduce future disputes.
Share Issuance vs. Share Transfer vs. Share Sale
Although these terms are sometimes used interchangeably, they describe different legal transactions.
A share issuance creates new shares and increases the corporation's issued share capital.
A share transfer moves ownership of existing shares from one owner to another.
A share sale is a type of share transfer involving the sale of existing shares for consideration.
The legal, tax, and securities law implications differ significantly depending on the transaction structure.
Corporate Approvals
Proper corporate authorization is essential before issuing or transferring shares.
Depending upon the transaction, approvals may include:
- board resolutions;
- shareholder resolutions;
- unanimous shareholder resolutions;
- amendments to articles;
- amendments to shareholder agreements;
- director approvals;
- class approvals;
- securities law documentation; and
- regulatory approvals.
Failure to obtain proper authorization may affect the validity of the transaction.
Shareholder Agreements
Many private corporations operate under shareholder agreements that restrict share transactions.
Common provisions include:
- rights of first refusal;
- shotgun clauses;
- drag-along rights;
- tag-along rights;
- board approval requirements;
- transfer restrictions;
- permitted transfers;
- valuation procedures;
- mandatory offers; and
- dispute resolution procedures.
Before issuing or transferring shares, the shareholder agreement should always be reviewed.
Securities Law Considerations
Issuing shares is generally considered a distribution of securities.
Unless a prospectus is filed, an exemption from the prospectus requirement will usually be required.
Common exemptions include:
- accredited investor exemption;
- private issuer exemption;
- family, friends and business associates exemption;
- employee, executive officer, director and consultant exemption;
- minimum amount investment exemption;
- offering memorandum exemption; and
- existing security holder exemption.
The appropriate exemption depends upon the facts of the transaction.
Share Certificates and Electronic Registers
Following a share transaction, the corporation should update its corporate records.
This may include:
- issuing share certificates;
- updating electronic share registers;
- updating the securities register;
- cancelling existing certificates;
- recording transfers;
- recording consideration;
- updating shareholder information; and
- maintaining supporting documentation.
Modern corporations may use electronic registers rather than physical share certificates.
Minute Book Updates
Every share transaction should be reflected in the corporation's minute book.
This may involve updating:
- share registers;
- securities registers;
- director resolutions;
- shareholder resolutions;
- articles;
- shareholder agreements;
- subscription agreements;
- transfer documentation;
- capitalization tables; and
- corporate ledgers.
An outdated minute book can significantly delay financing transactions, acquisitions, or due diligence.
Share Valuation
Many share transactions require determining the fair value of the shares.
Valuation issues may arise in connection with:
- shareholder exits;
- estate planning;
- employee equity;
- tax planning;
- reorganizations;
- family transfers;
- shareholder disputes;
- minority interests; and
- buy-sell provisions.
The appropriate valuation methodology depends on the circumstances and applicable agreements.
Tax Considerations
Share transactions frequently involve important tax issues.
These may include:
- capital gains;
- adjusted cost base;
- paid-up capital;
- estate freezes;
- section 85 rollovers;
- shareholder benefits;
- taxable benefits;
- attribution rules;
- corporate reorganizations; and
- lifetime capital gains exemption planning.
Tax advice should be considered before completing significant share transactions.
Family Business Succession
Many privately held corporations transfer ownership as part of family succession planning.
Share transactions may be structured to facilitate:
- intergenerational transfers;
- management succession;
- estate planning;
- holding company reorganizations;
- family trusts;
- voting control; and
- gradual ownership transitions.
Proper planning can reduce legal and tax risks.
Employee Equity
Corporations frequently issue shares or other equity interests to employees.
This may involve:
- founder equity;
- restricted shares;
- stock options;
- deferred share units;
- restricted share units;
- performance share units;
- phantom equity; and
- employee share purchase plans.
The legal documentation should reflect the corporation's compensation strategy.
Regulated Businesses
Share transactions involving regulated businesses may require additional analysis.
Ownership changes may affect:
- cannabis licences;
- liquor licences;
- food licences;
- pharmaceutical businesses;
- payment service providers;
- money services businesses;
- financial institutions;
- transportation licences; and
- other regulated industries.
Notification, approval, or licensing requirements may arise before the transaction closes.
Common Share Transaction Issues
Businesses frequently seek legal advice regarding:
- improperly issued shares;
- missing corporate approvals;
- incomplete minute books;
- unsigned share certificates;
- conflicting shareholder agreements;
- missing subscription agreements;
- securities law compliance;
- valuation disputes;
- transfer restrictions;
- shareholder disputes; and
- historical corporate deficiencies.
Correcting these issues early often simplifies future financings and acquisitions.
Our Share Transaction Services
Substance Law assists clients with:
- share issuances;
- founder equity;
- investment rounds;
- subscription agreements;
- share transfers;
- share sales;
- corporate reorganizations;
- shareholder agreements;
- minute book updates;
- securities law compliance;
- capitalization table reviews;
- family business succession;
- employee equity arrangements;
- due diligence preparation; and
- historical corporate record corrections.
Work With a Share Transaction Lawyer in Canada
Whether you are issuing shares to investors, transferring ownership between shareholders, selling a business through a share sale, or correcting historical corporate records, Substance Law can help ensure your transaction is properly documented and legally compliant.
Frequently Asked Questions About Share Issuances, Transfers and Sales
What is the difference between a share issuance and a share transfer?
A share issuance creates new shares issued by the corporation. A share transfer transfers ownership of existing shares from one shareholder to another.
What is a share sale?
A share sale is a transaction in which an existing shareholder sells shares to another person or entity for consideration.
Do directors need to approve a share issuance?
In most cases, yes. Directors generally authorize the issuance of shares in accordance with the corporation's governing legislation and articles.
Do shareholder agreements restrict share transfers?
Often they do. Many shareholder agreements include rights of first refusal, transfer restrictions, drag-along rights, tag-along rights, and other provisions affecting share transactions.
Does issuing shares trigger securities law requirements?
Yes. Share issuances generally involve securities law considerations and often require reliance on a prospectus exemption unless a prospectus is filed.
Should my minute book be updated after issuing or transferring shares?
Yes. Corporate records, including share registers, securities registers, resolutions, and capitalization records, should generally be updated promptly.
Can shares be transferred to family members?
Yes, but legal, tax, shareholder agreement, and corporate law considerations should be reviewed before completing the transfer.
Can Substance Law assist with correcting improperly issued shares?
Yes. Substance Law assists businesses with historical share issuance issues, corporate record corrections, minute book updates, shareholder disputes, and properly documenting new share transactions.
